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Paul S C
9 Comments
Federal Reserve: Household Equity at All Time Lows
Remember me? We had a disagreement about a year ago over the long term merits of Hussman Strategic Growth (HSGFX) (see Hussman's "phase transition" article). I apologize for not posting a comment for the article above but I had promised to follow up with you in a year's time - as that's how long I thought it might take to properly evaluate HSGFX - and this was the only way I could think of. Perhaps now you will consider the fund and the friendly advice of strangers?
All the best,
Paul
Foreign-Owned Assets in the U.S. Top $20 Trillion
John Hussman: We May Be Seeing a Phase Transition
Out of the entire Morningstar domestic large cap (that’s value, growth, and blend) mutual fund universe - roughly 1,500 funds - Hussman Strategic Growth has the HIGHEST 7-year (monthly since inception) Sharpe ratio. Throwing all of the domestic mid cap funds – roughly 650 – into the analysis, there are only 2 funds that have a higher Sharpe. So out of an impressive 2,165 mutual funds, 1,331 of which have a 7-year track record, Hussman Strategic Growth has the 3rd highest Sharpe ratio. Mr. Lewing, please go back and read that again very slowly – I don’t mind if it takes you a while to comprehend. You see, unlike you, I am patient.
That’s reason enough for me (and I suspect a few other people out there) to hang on to this fund. And, all it took was one, brief, concise, paragraph.
Throw in the potential the fund has to add over 320 basis points of alpha in a single day (over the S&P 500) - when you need it most – like on Friday (which is exactly what it did) and I would say it is time for Mr. Lewing to sell his dribble somewhere else.
John Hussman: We May Be Seeing a Phase Transition
Hussman Strategic Growth’s Sharpe ratio since inception is either 1.15 (arithmetic) or 1.12 (geometric) depending on which method you prefer. This is taking the longest period where monthly returns (as you stipulated) are available, namely 8/1/2000 (roughly one week after inception) to 7/31/2007.
I’ll be honest; I was sort-of winging it earlier with the word “stellar”. I knew the number was good simply because I knew the fund’s return over the same period was good (11.91%; which, I might add represents roughly 900 basis points of annual excess return over the S&P500). I also knew the annualized monthly standard deviation over the same period (7.6%) would help put his returns in perspective. However, thanks to your brazen ignorance, I can now be more specific. Now read carefully, I don’t want you to miss anything!
I looked at every single domestic Large Cap open-end mutual fund I could get my hands on (I came up with roughly 1,500) and compared the 7-Year Sharpe ratios on all of them. Guess who had the highest Sharpe ratio? If you guessed Hussman Strategic Growth, you would be correct! If I add every single domestic Mid Cap open-end fund I can find (roughly 650), as Strategic Growth also holds some mid caps, I only get 2 that have a higher Sharpe ratio: Fairholme (FAIRX) and JPMorgan Mid Cap Value Inst (FLMVX).
Allow me to repeat the key point above:
Out of an unscreened universe of 2,165 domestic Large and Mid cap mutual funds, 1,331 of which have a 7-year track record, Hussman Strategic Growth has the 3rd highest 7-year (monthly since inception) Sharpe ratio.
I’m sure that’s not the response you were hoping for; it’s a little more specific than my previous comment; however, given that I didn’t have the numbers at my finger tips, the word “stellar” was pretty apt.
Now I will be the first to say that comparing Hussman Strategic Growth to these long-only funds is not appropriate. But, I am not here to write a research report. I merely wanted to back up the word “Stellar”.
If you question the above; which no doubt you will, I encourage you to find me a domestic large or mid cap open-end fund with a better 7-year Sharpe ratio. I can help you with the calculations if you struggle.
You probably feel like you just walked into a freight train, don’t you Mr. Lewing? Well, I have some more news that might make you think twice before being unnecessarily rude in the future and hopefully temper your ignorance – wait for it – today alone, Hussman added 322 basis points of alpha.
John Hussman: We May Be Seeing a Phase Transition
Until then, goodbye John
John Hussman: We May Be Seeing a Phase Transition
Up until this point I have filtered through your posts and tried, though all good sense tells me I am wasting my time, to find some semblance of rationality. Call it common decency if you like. I now have a question for you: can you agree you have had a fair opportunity to voice your opinion?
No-one is arguing that strategic Growth’s pefrormance has been poor over the lastfew years. What you are failing to grasp is that the fund’s shareholders are well aware of this fact and have come to terms with Hussman’s ‘fully hedged’ stance as it was commuicated to them on a WEEKLY BASIS! They also realize that Hussman’s gauge of ‘favorable market action’ did not work for the last few years of the protracted bull market. Nothing you write is news!
Who are your ramblings directed at? – on the one hand, you have the choir – and on the other are those who now suspect lunacy and just rolltheir mouse wheels dwn a few times when they see your name (although even that has become tiresome). Sir, I am sorry to say, that as of today I am one of the latter.
Please, I implore you,for the sake of civility and everyone’s time, move on. Why not focus your wealth of time and effort somewher else; like helping people with teaser-rate mortgages resetting in mid-2008 figure out how they are going to refinance? Anything but this!
John Hussman: A Sack O' Potatoes Market
Perhaps his foresight is 20/20, just like his (and everyone else's) hindsight. Perhaps he has all this time because he knew the bull market was going to last this long and rode it all the way to an early retirement. Perhaps he did the same thing in the late nineties and got out at the exact moment that the final straw came down on the camels back. Perhaps he is writing all these, somewhat obsessive, emails from his hammock in the British Virgin Islands, Mojito in one hand, Hussman prospectus in the other. Perhaps.
John Hussman: A Sack O' Potatoes Market
I agree with much of what you say. Worth mentioning is that I am certainly not bummed about what’s happened over the last few days. Nonetheless, thanks for the advice – I’ll take all I can get.
My point with Hussman is that I don’t believe we have enough history to throw the bathwater out without the baby going with it. Granted, four years of poor absolute performance is a lot of (dirty) bathwater.
Only time will tell if a passive investor, all considered, would have been better served (over a significantly long period of time) exercising patience and hanging on to this fund. This, assuming they caught the full brunt of the last four years. I think it likely there will be many of these people looking back many years from now (or maybe sooner if this pullback continues) with a healthy dose of regret; realizing that the fund was a good, if not a great, long-term investment.
My two bits are: those who have the time, the will, and the ability to generate alpha consistently shouldn’t be invested in a mutual fund in the first place, let alone a defensive one. I, for one, am not there yet.
John Hussman: A Sack O' Potatoes Market
I only ask one favor of you: please remember what Hussman is selling with the Strategic Growth fund. He’s not selling the S&P500, or any other long equity exposure for that matter. He is, instead, selling (what is often) a partially hedged exposure to those underlying equities. I don’t think it should come as a surprise to anyone that Hussman has not kept pace with the bull market of the last few years; frankly, to expect this is a little obtuse.
We could all learn a lot by looking back at the events of the last week, where Mr. Hussman’s meager 1.53% YTD (as of last Fri) became a modest 3.02% (as of today). Again, looking YTD, a rough calculation comparing Hussman's net performance YTD with a few investable proxies (iShares ETFs/Vanguard Index funds) for the Russell 1000, 2000, 3000, and S&P500, puts Hussman ahead of all of them! In addition, to say that the returns of a single day are not material is not fair. Strategic Growth’s performance over the last few days is a function of its structure. And, it is structured to protect during days such as these - with an (fully transparent) insurance premium (which naturally costs on the upside.)
To be fair, let us ignore what has happened this July and look at the longest period we can (since inception in late July ’00). I get Strategic Growth up 11.7%, vs. 2.3% for the S&P500. Is that not material? Even if we move the end-point sensitivity completely in favor of your argument and look at the full bull market from October ‘02 until June ’06 (again, ignoring this last month), we get Hussman up 7.6% vs. 15.7% for the S&P. During this exceptional bull market, the latter portion of which was a ‘perfect storm’ for the fund, it was able to capture little more than 8% of down months, had a max drawdown of about half the S&P, and still returned 7.6%. Is there no merit in this achievement? Judging a strategy like this over such an extended bull cycle on return alone is nothing short of irresponsible. I might add that Hussman’s down-capture since inception is -20%. So he’s up, on average, 20% of what the market loses. I won’t even mention historical standard deviation and Sharpe.
Hussman has been "fully hedged" for a perfectly good reason. His argument is sound and he doesn’t make any rash predictions. I think the least we can do is respect that and get on with our own investing.
Paul Courtney